As home ownership in the U.S. sinks to a 19 year low of 64.4% more attention is being focused on the rental housing stock. Vacancy has dipped to 4.7% tipping the scales in the landlords favor. An evenly balanced market is considered to have a vacancy rate of 5%. The lower supply increased rental rates. Nationally the $420 billion dollars paid in rent in 2013 increased to $441 Billion in 2014 a 4.9% increase. Rent growth for 2015 is expected to increase again with strong job growth, inflation, and the entrance of the millennial generation into the work force seeking independent housing.
Denver is ranked 5th on the National Apartment Index (NAI) which measures metropolitan areas with the lowest vacancy, strong job growth, strong rent and demographic trends. New York and San Francisco hold the top two places on the NAI. Nearly every industry in Denver is expecting strong job growth, which will continue to strengthen our economy and maintain developers’ optimism.
Average rents in the Denver area increased by 12%. The total rents increased from $4.5 billion paid in 2013 to $4.9 Billion in 2014. This 12% increase means tenants shelled out $474 million more dollars in 2014. How do these numbers impact the single tenant? The average tenant is paying $86 more per month equating to $1,032 more per year in rent. Experts are forecasting rents to increase again in 2015 by as much as 8% which is expected to bring the average rent up from $1,168 in 2014 to approximately $1,260 for 2015.
Vacancy in Denver dropped from 5.2% in 2013 below that balanced market number of 5% to 4.7% in 2014. The delivery of several new apartment complexes in the Denver area for 2015 is expected to raise vacancy rates slightly as the market absorbs the new inventory. The quality of the new inventory will continue to raise the average rent despite the anticipated increase in vacancy.
Developers, attracted by the employment forecast in Denver, have delivered 7,588 units in 2014 and expect to deliver even more units in 2015. The large institutional purchasers have many investment opportunities for downtown Class A properties.
What does this mean for the average investor? If you have failed to raise your rents in the last two years you are at least 20% behind market rents. This is where hiring an expert in the industry like 8z Rentals can keep your investment performing at its peak. Many times we are able to increase rents enough to cover the costs of management. That frees you up for more valuable things in life like time with the family or finding more deals!
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